🔔 FCA’s Basic Savings Rate – is it a good idea?

This week we’ve been delving deeper into the Financial Conduct Authority’s (FCA) Discussion Paper on how to tackle price discrimination in the savings market.

It was announced back in July that the FCA were seeking feedback from the industry and savers on measures they might look to take forward to improve the interest that long-standing customers are earning and encourage more of us to switch our savings accounts.

One of the key suggestions is the introduction of a 'Basic Savings Rate'.

This would be paid to all existing easy access and easy access cash ISA savers after a set period of time, such as 12 months.

That means that although you may open the account at a much higher rate, the rate would fall to pay the provider's Basic Savings Rate after the initial period.

The rational for this is not only to improve the rates paid on long-standing accounts that have seen the interest dwindle to virtually nothing - even if it might only be marginally - but it would also make comparing rates much simpler, which may then encourage more switching.

Currently many providers still have a long list of different types and versions of easy access accounts to trawl through when trying to see how your rate compares.

Do you have online saver issue 3 or issue 8? Do you have Easy Access ISA 5 or 9? It can be a minefield, because each issue might be now paying a different rate.

So you need to check carefully.

With the BSR, you’d be able to see quite clearly how your provider’s BSR compares to others. And although this isn’t an indication of whether your provider or others are offering a good deal, as there would still be better-paying introductory rates available in the market, the BSR would be an easy way to see how fairly a provider is treating longer-standing customers.

For example, it’s highly likely that the high street providers will pay, as they already do, next to nothing on their BSR, most likely less than 0.35% in the current market. However, the likes of Coventry Building Society - which is already paying its loyal customers good rates and in some cases extremely competitive rates - are likely to pay a much higher BSR.

Now, as with everything, the suggestion is not without its potential pitfalls. Not least as the providers will set the BSR themselves and they can change it.

But after initial scepticism about it, we’re beginning to see some of the merits.

Of course, another downside is that it could affect the best buy rates and it would mean than everyone would fall to the provider's BSR after a set time, so some savers could be disadvantaged.

However, you would hope that for those savers who are already active, this would be another prompt to get them switching to the next best buy. Which is the second point in the paper; how can we get more people switching savings accounts?

So, what do you think? As active savers and those who are interested in the savings market, we’d really value your thoughts and suggestions about what you think of the BSR concept and what you think it takes to get you to switch your savings account.

So, why not drop us a line. We’ll pick out some of the best thoughts in a future newsletter and may even put them forward to the FCA – with your permission of course.

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